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Down payments rise as lending criteria bite

Amount required from borrowers increased as banks tighten conditions due to rising NPLs

Leading property firms have had to increase the down payments they require from condominium buyers from 10 per cent of a unit's value to between 15 per cent and 20 per cent, due to tighter bank restrictions on the approval of mortgage applications.

Banks have tightened their lending criteria during a period of high household debt limiting many people's residential purchasing power.

"We have had to increase our down payments for all condominium market segments to between 15 and 20 per cent, at a time when the commercial banks are restricting mortgage approvals to customers," said Quality Houses CEO Rutt Phanijphand, who is also president of LH Bank.

LH Bank is limiting housing-loan approvals among its customers due to rising levels of household debt, and because the business risk from lower purchasing power has reduced the ability to repay debt to the extent that non-performing loans are on the increase, he said.

Given the market trend, Quality Houses has to select customers by focusing on real demand by increasing its down payment for condominium units from the legal standard of 10 per cent to 15-20 per cent. This will help customers reduce the mortgage value they have to apply for when the homes are ready to be transferred to them, he added.

Meanwhile, down payments on detached housing and townhouses have also been hiked, from the previous average of 5 per cent - in line with the legal standard - to the current level of 10-15 per cent.

This forms part of the developer's pre-approval process to reduce the business risk from customers being unable to have their homes transferred after construction is complete, he explained.

Land & Houses president Naporn Sunthornchitcharoen said his company had started to increase the down payments required for its condominiums, detached houses and townhouses early this year, for similar reasons.

"Increasing down payments is a way to select customers who have the purchasing power to repay [housing loan] debt," he said.

"Twenty-three per cent of our customers have been unable to get a mortgage from the banks since the beginning of the last quarter, as their financial statements show a high debt level and lower income, causing the banks to reject their applications," said Pruksa Real Estate president and CEO Thongma Vijitpongpun.

The company has, however, tried to help customers in this situation find ways to present their financial statements in a more favourable light, and it also encourages them to find a family member to jointly apply for a housing loan with them, he said.

"Most of our customers who booked units in our projects in 2012, also got a pre-approved loan from the bank, which they paid down every month.

"But [many of them] then decided to buy a new car in the final month of 2012, which increased their debt," said LPN Development managing director Opas Sripayak.

"This reduced their purchasing power to take on new debt when applying for a mortgage this year, now that their condominium is finished and is ready to be transferred to them," he said.

"As a result, we have had to find a way to help them to get a loan, by negotiating with the banks as well as suggesting our customers contract with their family members to jointly apply for a mortgage," he added.

Meanwhile, Supalai managing director Atip Bichanond, who is also president of the Business Housing Association, said that amid the country's political turmoil dragging on for so long, the number of home-buyers unable to transfer their units - especially condominiums - due to banks rejecting their mortgage applications had risen, because their credit scores were now lower than the banks' standard.

"The number of potential customers visiting our projects has dropped by up to 50 per cent compared with the same period last year, and our presales fell by about 15 per cent in January on a year-on-year basis," he said.

Property Perfect's deputy chief business development officer, Wongsakorn Prasitvipat, said the company had upped its down payments for condominiums from 10 per cent to between 15 and 20 per cent.

The move will reduce the number of rejections of mortgage applications by the banks, which currently stands at about 15 per cent of Property Perfect's customers, he said.

A source in the property sector said about 250,000 condominium units would be completed and ready for delivery to customers this year. However, at least 20 per cent may be unable to transfer due to the banks rejecting their housing-loan applications.

Meanwhile, Chatchai Payuhanaveechai, executive vice president of Kasikornbank, acknowledged that the bank was minimising its risk by limiting the provision of mortgages to those customers who could prove they have sufficient earnings to keep up their repayments over the long term.

Market likely to contract

Given the prevailing trend, leading developers forecast the residential property market in greater Bangkok will at best be flat, or more likely will contract by between 2 per cent and 5 per cent this year.

Quality Houses' Rutt said that given the ongoing political turmoil, purchasing power having fallen due to rising household debt and potential home-buyers' concerns about their future earnings during a period of only slight economic growth, the property market in Bangkok and its suburbs could decline by between 2 per cent and 5 per cent - depending on when the political crisis ends.

"If the country's political impasse ends in the current quarter, the property market may just about maintain last year's level. If not, it will likely decline," he said.

For similar reasons, Pruksa's Thongma said the property-market outlook over the full year was for a potential fall of 2-5 per cent from last year's level.

"Our sales have fallen by more than 30 per cent since December. However, that will not impact our total revenue this year because we have a backlog that will generate income for our business both this year and next," he said.


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